Maintain ‘buy’ on Tejas, see strong India business growth

Tejas’ management in the analyst meet reiterated 20% CAGR revenue guidance for FY17-20E led by a strong order book to be executed over FY18-20E (after muted FY18) implying a stronger growth.

Tejas’ management in the analyst meet reiterated 20% CAGR revenue guidance for FY17-20E led by a strong order book to be executed over FY18-20E (after muted FY18) implying a stronger growth.

Tejas’ management in the analyst meet reiterated 20% CAGR revenue guidance for FY17-20E led by a strong order book to be executed over FY18-20E (after muted FY18) implying a stronger growth. India business to see strong growth led by fibre broadband and telcos capex, Bharatnet Phase-2 and preferential market access. On international side, Africa (4G, broadband opportunity) and SE Asia (focus on Malaysia and Vietnam with key wins) are in expansion stage. It is in discussion and/or testing stage with 3-4 potential customers in US, where it expects revenue to go back to FY17 level. It expects addressable market for optical equipment to be $23 bn by 2022 ($19 bn in 2017). It is also working on new product under new series TJ1900 with 1TBps capacity. We expect strong order book has improved revenue visibility. Reiterate BUY.

Healthy business growth in India is expected with optical market projected to grow from $723 mn in FY18E to $947 mn in FY23E. Also, it has strong funnel for Bharatnet phase2 on wins by its partners (emerged as L1 bidders). Tejas is also expected to benefit from Rs 60,000 crore planned capex by Indian telcom service providers including fiberization of infrastructure. Americas (US, Mexico), Africa and South East Asia remain key international focus market for Tejas wherein it has started investing in the sales. Addressable market for optical equipment is expected to be $23.1 bn by 2022 from $18.7 bn in 2017 (5%CAGR). We expect international revenue growth to gradually reduce lumpiness in its revenue.

With core focus on metro and access products, it is also working on a new product under TJ1900 series that will have 1TBps capacity (24 units stacked to provide higher capacity). Company has claimed strong funnel for phase-2 of the project via partner wins. It sees visibility into tender funnel across customers on optical transport network (OTN), Dense Wavelength Division Multiplex and Gigabit capable Passive Optical Networks (GPON) products. Few large state BharatNet projects (Kerala, AP, etc.) are at Request For Proposal (RFP) stage that can provide an upside in demand for Tejas products including wireless as well as Ethernet switches.